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US Opens A New Front in Trade Wars with Proposed France Duties

On December 2, 2019, the United States Trade Representative (USTR) announced that it had determined France’s Digital Services Tax is unreasonable or discriminatory and burdens or restricts US commerce, and that it is proposing additional ad valorem duties of up to 100 percent on products from France, under Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411). Potential products subject to the additional duties are provided in a preliminary list of 63 Harmonized Tariff Schedule (HTS) subheadings with an estimated import trade value of approximately $2.4 billion.

Parties seeking changes to the proposed list of tariff subheadings or to lower duties should take advantage of this comment period.

Why is USTR proposing additional duties on French imports?

Under Section 301, USTR can take retaliatory action, if it determines that an act, policy or practice is unreasonable or discriminatory and that it burdens or restricts US commerce. Section 301 action against France is aimed at countering the 3 percent Digital Services Tax (DST) signed into law this summer. The DST is on revenue from some online activities, such as data collection and web advertising. USTR found that the tax targeted large US multinational corporations.

USTR initiated an investigation into the French DST in July 2019. On December 2, USTR issued a report on its investigation into the French DST and made a finding that the French DST is actionable because it discriminates against US companies, is inconsistent with prevailing principles of international tax policy, and is unusually burdensome for affected US companies. Specifically, USTR’s investigation found that the French DST discriminates against US digital companies.

This Section 301 finding is specific to France and is separate from the Section 301 determination USTR made for China because of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. Product exclusions obtained for the duties imposed under the Chinese Section 301 action will not apply to these duties.

What is USTR proposing and what products will be impacted?

USTR published a list of 63 tariff subheadings on which it is proposing additional duties, but additional tariff subheadings may be added in the final determination. USTR did not list the proposed duty on each proposed tariff subheading but did state that the duties could be up to 100 percent.

Among other products, the proposed tariff subheadings include yogurt, whey protein concentrates, butter, several varieties of cheese and cheese substitutes, sparkling wine, various beauty products, handbags, and porcelain products.

In addition, USTR is considering imposing fees or restrictions on services from French providers in the United States. According to the press release, USTR is also exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey. British Prime Minister Boris Johnson indicated that Britain is also considering implementing a digital services tax

When will the additional duties be effective?

USTR did not announce the effective date for the tariffs, but it could be any time after January 14, 2020, the due date for submitting post-hearing rebuttal comments.

When are requests to appear at hearings and comments due?

Below are the deadlines for the French DST Section 301 determination:

December 30, 2019: Due date for submission of a request to appear at the public hearing and a summary of testimony.

January 6, 2020: Due date for written comments.

January 7, 2020: The Section 301 Committee will convene a public hearing in the main hearing room of the US International Trade Commission, 500 E Street SW, Washington DC 20436 beginning at 9:30 am.

January 14, 2020: Due date for submission of post-hearing rebuttal comments.

What information is USTR seeking in the comments?

USTR requested comments on whether the action is appropriate, and if so, the appropriate action to be taken. USTR is seeking comments on the proposed tariffs and whether to take additional actions, including imposition of fees or restrictions on services of France.

Specifically, USTR is seeking public comments on the level of harm to the US economy caused by the DST, including DST payments owed by US companies, the annual growth rate of such payments, and other effects, such as compliance costs.

For the proposed additional duties, USTR invited comments regarding the following topics:

  • The specific products to be subject to increased duties, including whether products listed in the proposed list should be retained or removed, or whether products not currently on the list should be added.
  • The level of the increase, if any, in the rate of duty.
  • The level of the burden or restriction on the US economy resulting from the DST.
  • The appropriate aggregate level of trade to be covered by additional duties.

When providing comments on the inclusion or removal of a particular product, USTR requested that commenters specifically address whether:

  • Imposing increased duties on a particular product would be practicable or effective to obtain the elimination of France’s acts, policies, and practices; and
  • whether imposing additional duties on a particular product would cause disproportionate economic harm to US interests, including small-or medium-size businesses and consumers.

Parties should also consider providing comments on whether the same quality of products can be sourced from other countries, including, but not limited to, the US.

For potential actions in the form of fees or restrictions on services of France, USTR is seeking comments on:

  • which services would be covered by a fee or restrictions.
  • If a fee is imposed, the rate (flat or percentage) of the fee, and the basis upon which any fee would be applied.
  • If a restriction is imposed, the form of such a restriction.
  • Whether imposing fees or restrictions on services of France would be practicable or effective to obtain the elimination of France’s acts, policies, and practices.

It is likely that USTR is seeking to affect $2.4 billion in trade with France as a result of this action; therefore, when submitting comments on the removal of products from the proposed list of tariff subheadings parties should analyze how their proposed exclusion impacts this goal.

Although USTR instituted an exclusion process of the Chinese Section 301 duties after they were implemented, USTR is not required to do so and in the past has elected not to institute an exclusion process for retaliatory actions.

Whether a party should submit comments is largely dependent on the level of impact of the duties. However, please be advised that this may be your only opportunity to submit comments. The request to appear at a hearing is due in 26 days and the comments are due in 33 days.

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